Working Capital Management and Profitability: Evidence from Select BSE-Listed Metal and Mining Companies in India

Author

Asst. Prof. (Dr.) Amit Das, Rajdeep Bhattacharjee


Abstract

 Effective working capital management enhances operational efficiency and financial performance for firms, especially in the metal and mining industries. Efficient management of current assets and current liabilities helps firms maintain financial stability and smooth operations of the firm. This study was conducted with the objective of analyzing the effect of working capital management on the financial performance of select Indian metal and mining companies. This study was based on panel data of 150 firm-year observations. As per the unit root test, it was confirmed that all of the variables were stationary at the level. The dataset remained suitable for regression analysis, and the possibility of misleading outcomes during estimation became lower. The panel regression analysis identified several aspects of working capital management and the financial performance of the selected metal and mining sectors. It showed that liquidity and the variables of efficiency in operations affected profitability in a dissimilar manner at various points in the period under review. Regression analysis showed that the Quick Ratio had a positive and significant relationship with Return on Total Assets and Net Profit Margin. Similarly, the Stock Turnover Ratio had a positive and significant relationship with Return on Total Assets, Net Profit Margin, and Return on Net Worth. The results also indicated that the Current Turnover Ratio was positively and significantly associated with Return on Total Assets, Net Profit Margin, and Return on Net Worth. On the other hand, the study found that the Current Ratio had a negative and significant impact on Return on Total Assets. It indicated that a higher current ratio reduced the efficiency of asset utilization. Further, the regression analysis revealed that the Cash Position Ratio did not have any significant relationship with the profitability ratios. It suggested that changes in cash position did not meaningfully influence the profitability performance of the firms. Proper control over liquidity and operational efficiency measures helped firms achieve better financial performance during the study period.



Keywords

Working Capital Management, Metal Companies, Mining Companies, Profitability, Panel Regression Analysis.



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References


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